Individuals’ responsiveness to marginal tax rates: Evidence from bunching in the Australian personal income tax

Shane Johnson, Robert Breunig, Miguel Olivo-Villabrille and Arezou Zaresani

Labour Economics, 2024, vol. 87, issue C

Abstract: We examine individuals’ responsiveness to marginal tax rates using the universe of Australian taxpayer records from 2000 to 2018. Unlike studies from other countries, we find sharp bunching at all kink points. The estimated Elasticities of Taxable Income (ETI) range from effectively zero for wage earners to 0.23 for self-employed individuals. There is substantial heterogeneity in responses to changes in marginal tax rates across subgroups, with higher elasticities for married females, females with children, younger individuals, and those with greater opportunity to shift income within the household. Our findings suggest that individuals’ responsiveness is a function of the marginal tax rates and the tax system's structure and administration.

Keywords: Elasticity of Taxable Income (ETI); Bunching; Marginal tax rates; Taxpayer responsiveness (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:87:y:2024:i:c:s0927537123001367

DOI: 10.1016/j.labeco.2023.102461

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